Tax Guide - Serbia

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Serbia Business and Taxation Guide

Business and Taxation
Guide to

Serbia

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Preface

This guide was prepared by LeitnerLeitner Consulting d.o.o, Belgrade, Serbia in January 2012.

LeitnerLeitner has offices in:

Vienna
Linz
Salzburg
Sarajevo
Zagreb
Budapest
Bucharest
Bratislava
Belgrade
Ljubljana.

The Serbian Praxity Participant firm is:

LeitnerLeitner Consulting d.o.o,
23 Resavska Street,
Belgrade,
Serbia
Tel: +381 11 655 51 05
Fax: +381 11 655 51 06
Email: office.belgrade@leitnerleitner.com
Website: www.leitnerleitner.com

Developments in tax legislation are rapid. The information given in this guide reflects the tax
legislation as of January 2012. Before taking specific decisions, its recommended that professional
advice and guidance be sought.

This guide provides a brief overview. More detailed information on matters discussed in this
publication can be obtained from the persons responsible for the tax and advisory service areas
within LeitnerLeitner in Serbia:

Rene Schb, Partner - Rene.Schoeb@leitnerleitner.com

Praxity 2011
This guide is intended as a general guide only and should not be acted upon without further advice.

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Contents Page

1. General information 4
1.1 Opportunities and possible obstacles for foreign investors
1.2 Area and population
1.3 Government and law
1.4 Key economic indicators
1.5 Securities Act
1.6 Antitrust considerations
1.7 Immigration Act
1.8 Currency
2. Regulation of foreign investment 8
3. Government incentives 9
4. Business organisations available to foreigners 10
4.1 Joint Stock Company
4.2 Limited Liability Company
4.3 Partnership
4.4 Sole proprietorship
5. Setting up and running business organisations 12
5.1 Process for establishing a business
5.2 Labour laws
5.3 Accounting and auditing principles
6. Corporate taxes and social charges 14
6.1 Incorporation
6.2 Corporate income tax
6.2.1 Taxable corporate entities
6.2.2 Foreign company not engaged in a trade or business in Serbia
6.2.2 Foreign company engaged in a trade or business in Serbia
6.2.4 Domestic corporation
6.3 Tax rates
6.3.1 Sale of capital assets
6.3.2 Depreciation or amortisation
6.3.3 Losses
6.3.4 Intercompany dividends
6.4 Tax payment and filing of returns
6.5 Group taxation
6.6 Tax credits
6.6.1 Foreign tax credit
6.6.2 Other credits
6.7 State and local taxes
6.8 Withholding tax
6.9 Corporate liquidations or distributions
6.10 Social security
7. Personal taxation 18

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7.1 Residents and non-residents
7.2 Income
7.2.1 Annual personal income tax
7.3 Real estate and gift taxes
8. Double taxation agreements 20
8.1 Withholding tax rates
9. Sales and use taxes 21
10. Portfolio investment for foreigners 22
10.1 Cash investments
10.2 Real estate investments
10.3 Securities
11. Trusts 23
12. Practical information 24
12.1 Transport
12.2 Language
12.3 Time relative to Greenwich Mean Time (GMT)
12.4 Business hours
12.5 Public holidays

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1. General information

1.1 Opportunities and possible obstacles for foreign investors

Some of the key attractions for foreign investors in Serbia include:

Access to a market of 7 million citizens
Bordering the core European Union, and within a growing Eastern European market
Investment incentives
Skilled and competitive workforce
Multilateral and bilateral conventions, significantly reducing or eliminating export/import
costs.

The following aspects may require careful consideration by a foreign investor and may, in some
circumstances, be regarded as investment drawbacks or possible obstacles:

Certain political instability
Strong bureaucracy in a number of business sectors
Anti-trust regulations, which prevent dominance in a particular market
Detailed monitoring of foreign exchange activities
Lack of regulations in certain sectors, which sometimes completely block business activities.

1.2 Area and population

Serbia lies in South-eastern Europe, surrounded by ex-Yugoslav countries of Croatia, Bosnia and
Herzegovina, Montenegro, Macedonia, and the EU member states of Romania, Bulgaria and
Hungary. Serbia has also mutual boundaries with Albania. The total land area of the country is
77,474 sq km.

The country's climate is predominantly continental, whilst in southern parts the climate is more
Mediterranean.

Serbias population is approximately 7.5 million. The most densely inhabited cities are Belgrade, Novi
Sad, Nis, Kragujevac.

1.3 Government and law

Serbia operates within the framework of a parliamentary republic, with the Serbian Government
exercising its powers through three independent branches. The Prime minister is the head of
government. Executive power is exercised by the government. Legislative power is vested in the
National Assembly of Serbia. The Judiciary is independent of the executive and the legislature. In
addition, many federal agencies have regulatory powers over specific industries or activities.
Businesses are also subject to local municipal laws.

All state and agency laws and regulations are subject to judicial review, which is exercised if an
individual or business entity to which the statute has been applied brings suit to contest its validity.
The judicial courts are divided by territorial and case competence.

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1.4 Key economic indicators
The average growth of Serbia's GDP in the last ten years has been 4.45% per year. Serbia's primary
industries include processing of base metals, furniture, food processing, machinery, chemicals,
sugar, tyres, clothes and pharmaceuticals.

1.5 Securities Act

The principal Serbian statute regulating securities transactions is the 2011 Capital Markets Act. This
Act regulates the issuing of securities and trading on the stock market. According to the Capital
Markets Act, a domestic corporation that proposes to make a public offering of its own securities
must usually register with the Securities Commission (SC). A prospectus containing detailed and
complete disclosure of all data required by the law pertinent to the offer must be filed and must
receive SC approval before the new stock issue can be marketed. In addition, periodic public
reporting is generally required of every publicly held corporation.

1.6 Antitrust considerations

The acquisition of an interest in the assets or stock of a Serbian company, whether publicly or
privately held, and whether or not affected by merger with an existing or new corporation, must
involve consideration of Serbian antitrust laws.

The antitrust laws apply to persons engaged in the Serbian market, including acquisitions involving
two wholly foreign parties where such transactions may affect the competition in Serbia. The statute
applied is the Act on Protection of Competition. The regulatory body in Serbia is the Competition
Commission.

A notice of the acquisition, along with supporting documents, must be submitted prior to the
transaction. If the antitrust standards are violated, no concentration, i.e. acquisition, will be allowed.

1.7 Immigration Act

Serbian immigration laws make a distinction between aliens (foreign individuals) from abroad as
either non-immigrants or immigrants. Non-immigrants are foreign persons who enter the country
for a temporary purpose. Immigrants are for persons who have obtained permission to live and work
in Serbia permanently. In principle, an immigrant enjoys the same rights, privileges and
responsibilities as a Serbian citizen, except for the right to vote and hold certain government
positions.

Providing that local law or international conventions does not prohibit a foreign individual from
entering Serbia, they may apply for one of the following visa types:

C Visa issued for shorter tourist, business and other visits. With a C visa, a foreign person
can stay up to 90 days during a period of six-months in Serbia.
D Visa issued for temporary residence when the foreign person intends to reside in Serbia
more than 90 days and in cases when temporary residence is required by Serbian legislation,
for example employment in Serbia, education, family matters etc.

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1.8 Currency

The monetary unit used in Serbia is the Serbian Dinar, represented by RSD. One Dinar is divided into
100 paras.

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2. Regulation of foreign investment
Serbia does impose controls on foreign currency exchange and foreign currency operations. The
control over operations concerning foreign currency relates to reporting obligations to the National
Bank of Serbia. Nonetheless, a foreign investor or exporter is not restrained from repatriating the
capital or profits generated from a Serbian business or investment, subject to any withholding tax
required by Serbian law, modified as appropriate by a double taxation agreement. However, such
transactions require reporting to the National Bank of Serbia in the first instance, as well as to the
Ministry of Finance and the Customs Office.

In accordance with the Serbian Foreign Exchange Operations Act and by-laws, anyone can physically
transport monetary funds with a value of up to 10,000 into or out of Serbia on a single occasion,
without any reporting. Funds in excess of 10,000 can be transferred abroad only by means of a
bank transfer, with the supporting documentation providing evidence of the reason for the
transaction. Monetary funds include coins or currency of any country, bank cheques, travellers
cheques, or investment securities that exist in bearer form (material form).

The Serbian Government restricts (but does not prohibit) foreign investments in certain sectors, such
as broadcasting, defence, audit business etc. Despite these statutory controls, the Serbian policy
towards foreign investment is basically open, as it has traditionally been in the past. In addition,
many of the restrictions placed on the foreign investor can be prevented or eliminated through the
creation of a Serbian entity incorporated under the laws of Serbia.

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3. Government incentives

In addition to Serbian tax incentives for business investment, enterprises may benefit from a limited
number of government assistance programmes. Government employment programmes, loans, etc.
are available to foreign as well as domestic investors. Eligibility conditions differ for each
programme, so the responsibility rests with the investor to obtain detailed information about the
desired programme and the individual conditions that apply.

Further information can be obtained from www.siepa.gov.rs

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4. Business organisations available to
foreigners

For foreign investors seeking to initiate commercial activities in Serbia, several legal forms of
business entities are recognised, the main ones being:

Joint Stock Company
Limited Liability Company
Partnership (general or limited)
Sole proprietorship.

4.1 Joint Stock Company

A Joint Stock Company is a legal entity separate from the shareholders who create it, in which
registered capital is divided into shares. Because a corporation is an independent entity, its
shareholders are not generally liable for corporate debts. In principle, ownership in the corporation
(the shares) may be transferred only on the stock exchange. One or more directors, elected by the
shareholders, oversee and govern the Joint Stock Company.

4.2 Limited Liability Company

Limited liability companies (LLCs) are incorporated legal entities, in which shareholder liability for
debts of the corporation is limited to the amount of the subscribed share capital. For example, the
shareholders own a certain percentage of equity interest. The stake in an LLC is freely transferable,
not requiring trade in the stock exchange. Like corporations, investors in an LLC are generally not
personally liable for the debts of the LLC.

Shareholders of a Serbian LLC are always listed in the company register.

4.3 Partnership

A partnership is a legal entity held by two or more individuals or business entities. The partnership is
not tax transparent. This means profits of the partnership are first taxed at the level of the entity,
and then again at the level of the partners.

General partners of the partnership are fully liable for the obligations of the partnerships. Limited
partners only bare the risk of their investment into the partnership, not full liability for the
partnership's operations. A limited partnership must have at least one general partner whose
liability is unlimited and one limited partner whose liability is limited.

In contrast to shares of a corporation, which are freely transferable unless limited by contract, a
partner cannot transfer his or her partnership interest freely to a recipient and make them a
member of the partnership. In order for such a transfer to take place, the partner needs the consent
of all remaining partners.

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4.4 Sole proprietorship

A sole proprietorship is a basic form of business activity in Serbia and applies to an individual
carrying out a business, usually small. This individual faces unlimited liability in relation to the firm's
creditors. As a general rule, an individual sole proprietor must register his or her business. The
income of the proprietorship qualifies as the individuals personal income, meaning its not subject
to a separate tax. The individual is responsible for reporting and paying tax on their personal income
tax return.
Any individual, regardless of citizenship, who has the capacity to contract (not underage or suffering
from a disability), may register as a sole proprietor. The business is terminated upon the death or
disability of its owner or deregistration from the relevant registry.

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5. Setting up and running business
organisations

5.1 Process for establishing a business

The structure, legal status and rights of all Serbian legal entities are similar. In accordance with
Serbian legislation, joint stock companies, limited liability companies, limited and general
partnerships have their own legal personalities and are regarded as legal entities.

Serbia offers relatively flexible incorporation procedures. A company formed in Serbia is free to do
business locally and abroad, unless the business requires a special government license or franchise,
for example a bank or broadcasting company.

A company is formed by filing Articles of Incorporation with the Business Registers Agency, along
with other required documentation and the applicable filing fees. The Articles are prepared by or for
the corporations founders. The Articles describe its business purpose, proposed capital structure,
shareholder rights and other aspects stated in the Enterprise Act.

A company generally exists for a perpetual duration until it is dissolved by governmental act or a
majority vote by the shareholders. A legal representative is generally not required to be present in
Serbia. There is no requirement the company maintains a business office, operations or employees.

The rules which govern the manner by which corporate business is conducted are established by the
shareholders in the corporate charter and by-laws. In Serbia, these rules are supplemented by state
law, which contains both mandatory and elective provisions relating to shareholder rights.

Mandatory statutes override any contrary provision in the corporate charter or bylaws (elective
provisions very often will govern the categories or rights upon which the corporate charter is silent).
Therefore, some degree of familiarity with the laws of Serbia is desirable for the prospective
incorporator. The director or directors, elected by the shareholders, set corporate policies, manage
the business and represent the company. Major alterations in corporate structure, such as mergers
or liquidation of corporation assets, can only be undertaken with shareholder approval.

5.2 Labour laws

The Serbian Labor Act, the primary source of labour and employment law policy, guarantees an
employee the right to:

Form, join or assist labour organisations
A salary
Paid sick leave
Paid holiday and
Other benefits arising from an employment relationship.

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The government establishes the minimum wage rate paid to employees. In addition, the Labor Act
sets the normal work week at 40 hours. Employees working in excess of 40 hours per week must be
financially compensated for their overtime. There is no exception to overtime work, which means
the same rule that applies to workers also applies to executives.

Establishment of the terms, conditions or privileges of employment, including the decision to hire
and the setting of compensation, on the basis of ethnicity, colour, religion, gender, national origin,
age, disability or genetic information, is prohibited by law. In addition, health and safety conditions
in the workplace are governed by the Labor Act and by-laws.

5.3 Accounting and auditing

The Serbian Accounting and Auditing Act forms the basic piece of legislation for this matter. Basic
financial statements include balance sheets, statements of income (profit and loss), statements of
cash flows and statistical annex (the official terms for addendum to the financial statements).

The basic accounting principles used in the financial statements is IAS and IFRS. In general, significant
departure from generally accepted accounting and reporting principles must be disclosed in the
auditors report.

The responsibility of preparing financial reports rests with the management of the enterprise. Large
companies are required to have annual financial statements audited by independent auditors. In
Serbia, an external auditor must be a certified auditor and a member of the Chamber of Auditors.
Many other enterprises with shareholders (other than management), or requiring financing from
financial institutions, have their financial statements audited annually by a certified auditor.

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6. Corporate taxes and social charges

Income tax planning is an important part of the investment strategy for a foreign investor.

6.1 Incorporation

No tax is levied on a company or its shareholders when capital contributions of cash or other
property are made to a new company in exchange for company's capital stock. According to the
wording of the Serbian law, no capital gain is recognised where appreciated property is transferred
to a company against capital stock. However, according to the (unbinding) interpretation of the
Ministry of Finance, gain is recognised if the value of the transferred asset at the moment of
contribution is higher than its acquisition value.

6.2 Corporate Income Tax

6.2.1 Taxable corporate entities

The Serbian tax system distinguishes between a domestic company, organised and established in
Serbia, from a foreign company, organised and established abroad. A domestic company is taxed on
its worldwide taxable income. A foreign company, however, is generally taxed only on its Serbian
sourced income, either generated by its permanent establishment, or from passive investment
(dividends, interest, royalties, income from real estate etc).

A foreign corporate investor may operate in Serbia in one or more different ways, each of which
carries individual tax implications:

The acquisition of Serbian property without actively engaging in a Serbian based trade or
business
The establishment of a Serbian branch office, which will conduct an active business
The establishment of a subsidiary, organised and meeting the laws of Serbia.

6.2.2 Foreign Company not engaged in a trade or business in Serbia
A foreign company not actively engaged in a trade or business in Serbia is subject to tax on its
passive investment income derived from Serbian sources. This income is subject to a withholding tax
at a rate of 20%, or a lower rate if a double taxation agreement applies.

The payer of the income withholds the tax before payment is made to the foreign company, and this
tax is remitted to the Serbian government. No income deductions are allowed and the entire
amount is taxed at the applicable rate.

Income subject to the 20% withholding tax includes interest, dividends, rents, royalties and capital
gains.

6.2.3 Foreign Company engaged in a trade or business in Serbia
A foreign company is taxed at the same rates as domestic companies on all taxable income which
can be attributed to a Serbian branch of the foreign company.

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Profits attributed to the branch, for example a permanent establishment in Serbia, will be subject to
10% Corporate Income Tax. No remittance tax is imposed on the withdrawal of income for the
permanent establishment to the parent company abroad.

6.2.4 Domestic corporation
Corporate gross income is determined as gross profits from sales or services, dividends, interest,
rents and royalties and capital gains and losses. Taxable income is determined as gross income less
all allowable deductions.

6.3 Tax rates

Tax is calculated on the annual taxable income of a company at the rate of 10%. A controlled group
of companies is subject to the same tax rate.

6.3.1 Sale of capital assets
Sale of capital assets, such as shares, capital stock, other securities, real estate, industrial property
rights and similar will potentially result in a taxable capital gain.

The capital gain is defined as the difference between the sale price and the acquisition price of the
asset. The difference is subject to 10% tax. The 10% tax on capital gain is always due, even if the
company has operational losses in the respective year. Capital gains can only be offset against
capital losses from the current year or any available losses from the previous year. The Serbian
Corporate Income Tax Act allows capital loss carry forward for a maximum period of five years. No
capital loss carry-back is allowed.

6.3.2 Depreciation or amortisation
Fixed, depreciable assets are material goods, with a lifespan longer than a year and in which the
acquisition value at the moment of purchase exceeds the average monthly salary in Serbia. Fixed
assets also include intangible assets, with the exception of good-will.

Depreciable goods are divided into five amortisation groups with appropriate depreciation rates:

I group - 2.5%
II group - 10%
III group - 15%
IV group - 20%
V group - 30%

Assets from the first group (real estate) are depreciated proportionally, whilst assets from other
groups are depreciated by application of the declining method.

If the acquisition or production cost of a single asset does not exceed the average monthly salary in
Serbia, the total costs may be deducted in the year of acquisition or production.

6.3.3 Losses
According to the CIT Act, which applies to entrepreneurs, a tax loss may be carried forward and
offset against future profits by reducing the tax base in the following five years. Losses from the sale
of immovable property and proprietary rights (capital losses) may be offset only against income of

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the same kind (capital gains). If capital losses remain, they can be carried forward and offset with
future capital gains, but for no longer than five years.

6.3.4 Intercompany dividends
Intercompany dividends between two Serbian companies are tax exempt. Dividends paid by a
Serbian company to its foreign parent company, are subject to 20% withholding tax, or a reduced tax
rate, depending on whether a DTT can be applied.

6.4 Tax payment and filing of returns

Every Serbian company is required to file an income tax return. Returns must be filed by 15 March
for the previous tax year. A company is also required to make advanced tax payments, which may be
based on the current years projected taxable income or on the previous years tax liability. This
must be paid monthly. Interest is charged on any tax not paid by the due date.

6.5 Group taxation

In general, each corporate entity is regarded as a separate entity for income tax purposes.

Serbian companies may opt for group taxation. Foreign companies cannot participate in the tax
group. A tax group, in terms of the Serbian CIT Act, exists for when there is a direct or indirect
control of at least 75% shares or equity interest between the parent company and its subsidiaries. In
Serbia, the benefits of group taxation assume that the losses of one or more group members from
the respective tax period can be deducted from income of other group members from the same tax
period.

Group taxation, once granted by the tax authorities, must apply for the next five years.

6.6 Tax credits

6.6.1 Foreign tax credit
A domestic company can utilise tax paid abroad to reduce its tax liability in Serbia. In summary, a
Serbian resident company holding at least 25% of equity interest in a foreign subsidiary for a period
of 1 year preceding the submission of the tax balance, can utilise the income tax paid by its
subsidiary abroad and any potential withholding taxes to reduce its Serbian income tax. Any foreign
paid tax not utilised can be carried forward and credited against calculated Serbian income tax in the
next five years. No carry back is available.

6.6.2 Other credits
In general, all taxpayers who invest in business assets can use 20% of the investment made during
the year and offset it against up to 50% of calculated tax in this year. Tax payers regarded as small
enterprises may utilise 40% of the investments and offset it against up to 70% of the calculated
corporate income tax. Any excess tax credits can be carried forward and offset against future income
for 10 years. No carry back is allowed.

6.7 State and local taxes

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Apart from corporate income tax, VAT, personal income tax and potentially property taxes, a
taxpayer has to pay local taxes, i.e. fees. The local fee due to the municipality where the taxpayer
resides includes a company name display fee and a city construction land fee.

6.8 Withholding tax

Payments made to a foreign investor as dividend, interest, royalties, capital gain, income from units
in investment funds, income from entertaining, cultural, sport and similar activities and leasing of
movable and immovable property are generally subject to a withholding tax of 20% on the gross
amount of the payment. This may, however, be reduced by a double taxation agreement.

6.9 Corporate liquidations or distributions

In general, appreciated property distributions by a corporation to its shareholders are subject to
corporate income tax on any appreciation. This includes distributions as dividends and in liquidation.

6.10 Social security

Employers are required to withhold Social Security Contributions from wages paid to employees and
pay a matching contribution from its own funds. The Social Security Contributions due by both
employee and employer amount to 17.9%. The aggregate amount of 35.8% of Social Security
Contributions is due on salaries, which amount to five times the average monthly salary in Serbia.
Social Security Contributions are capped at this base rate for calculation, which means all salaries in
excess of five times the average monthly salary in Serbia is not subject to any additional
contribution.

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7. Personal taxation

7.1 Residents and non-residents

According to the Serbian Personal Income Tax Act, a resident is considered to be a person who:

Has their habitual place of living or centre of vital and business interest in Serbia
Resides in Serbia, with interruptions or continuously, more than 183 days during a 12 month
period, which starts or ends in a tax year in question.

All persons not falling within this definition are regarded as non-residents.

Residents pay income tax on their worldwide income, whilst non-residents pay Serbian personal
income tax only on income sourced in Serbia (subject to applicable tax treaties).

7.2 Income

The Serbian personal income tax system is cedular. This means that all income is taxed by a specific
income tax rate by withholding. Personal income tax is assessed by the Tax Administration, in cases
where the taxpayer is obliged to submit a tax return. In principle, Serbian tax law does not provide
for deductions of actual expenses from the gross income. Instead, fixed expenses are prescribed by
the Personal Income Tax Act for certain types of income.

The following income is subject to taxation:

Income from entrepreneurship
Income from salaries
Income from agriculture and forestry
Income from intellectual property rights and copyrights
Income from capital
Income from real estate
Income from capital gains
Other income.

Both resident and non-resident individuals pay tax on the above types of income. If the annual
income of a resident person exceeds a certain amount, the resident tax payer has to pay annual
personal income tax.

7.2.1 Annual personal income tax
In accordance with the Personal Income Tax Act, resident individuals who generate an annual
taxable income in excess of three times the average annual salaries paid in Serbia pay annual
personal income tax.

The taxable base is calculated by deducting taxes and social contributions paid during the year from
the gross annual income. In addition, a taxpayer has the right to claim the following deductions:

Personal deduction - 40% of the average annual salary paid in Serbia
Deduction for supported family members - 15% of the average annual salary paid in Serbia.

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The aggregate total of deductions cannot be higher than 50% of the taxable income.

Annual personal income tax rates are progressive:

10% on the amount of up to 6 times the average annual salary paid in Serbia
15% on the amount above 6 times the average annual salary paid in Serbia.

7.3 Real estate and gift taxes

Ownership of real estate triggers an annual property tax in Serbia. Every natural and legal person
that owns real estate in Serbia, irrespective of residence, is liable to pay annual property tax. The
taxable base is the market value of the real estate as of 31 December in the preceding year to the
year in which the tax is being assessed.

The tax rates are:

Up to 0.4% for taxpayers maintaining business books
Up to 2% for taxpayers that dont have business books.

Transfer of goods without consideration is subject to gift tax, providing the same transfer is not
subject to VAT. The taxable base is the market value of transferred goods, and the tax rates are 1.5%
and 2.5%, depending on the relationship between the benefactor and beneficiary. The lower tax rate
applies to the benefactors immediate family members.

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8. Double taxation agreements

Serbia has entered into various agreements with foreign governments to avoid double taxation on
the same income. Benefits under an agreement can generally be obtained only if the person or
entity is a qualified resident of one of the treaty countries.

Most agreements offer a reduction in the normal 20% Serbian withholding rate for dividends,
interest and royalties received by a person or an entity resident in the treaty country. State and local
government taxes are usually not covered by the agreements. In general, Serbian tax treaties follow
the Organisation for Economic Co-operation and Development model convention.

8.1 Withholding tax rates

Withholding tax is generally applied at a rate of 20% (unless a lower rate is available by a DTT
agreement). This is applied to Serbian sourced income paid to a non-resident person or foreign
corporation from:

dividends, interest, rents, industrial or copyright royalties
income from entertainment, cultural and sports events held in Serbia
lease of movable and immovable property.

The withholding tax is applied to gross income, without allowance for deductions.
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9. Sales and use taxes

The Serbian VAT Act imposes VAT on supply of goods and services in the territory of Serbia. The VAT
is generally imposed on the buyer or ultimate user of tangible personal property. The seller is
generally responsible for collecting and remitting the tax to the state. VAT is imposed on sales in
Serbia and import to Serbia. Exports from Serbia are not subject to VAT

The standard VAT rate in Serbia is 18%.
A reduced VAT rate of 8% applies to:
Bread, milk, flour, sugar, edible sunflower, maize, rape, soybean and olive oil, edible animal
and vegetable fats; fresh and frozen fruits and vegetables, meat, fish, and eggs
Medicines included in the list of medicines sold on prescription; orthotics and prosthetics, as
well as medical products that are surgically implanted; dialysis materials
Fertilisers, pesticides, seed stock, nursery stock and complete fodder mixtures for animal
feeding
Textbooks and teaching aids; daily newspapers; monographs and serial publications
Firewood
Accommodation in hotels, motels, resorts, recreation centres and camps
Utility services
Natural gas delivered to individual producers through the gas distribution network.

Any business with an annual turnover that exceeds 4 million Dinars in 12 months (or whose owner,
at the beginning of their business estimates that the business turnover will exceed that amount)
must register as a VAT taxpayer.

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10. Portfolio investment for foreigners

10.1 Cash investments

Foreign corporations and individuals can deposit monetary funds in Serbian banks and benefit from
generally high interest rates for savings.

The withholding tax on income from interest is 20% for corporations, subject to a potentially lower
tax rate from an applicable tax treaty. A tax treaty can also eliminate the taxation of the interest by
withholding.

The withholding tax on income from interest is 10% for individuals, in situations when foreign
currency is deposited to savings accounts. This tax rate may also be reduced or eliminated by an
applicable tax treaty. Interest paid to individuals on deposits in the local currency is tax exempt
under local tax legislation.

10.2 Real estate investments

Foreign persons can invest in Serbian real estate under reciprocal arrangements. Since the
acquisition of land is restricted for foreigners, the usual channel for foreign persons to acquire real
estate is through a special vehicle, i.e. through a company incorporated in Serbia.

Income from the lease of real estate is taxed as business income (corporations) or income from lease
of real estate (individuals). Capital gains, which can be generated in Serbia, are also subject to local
taxation. No tax treaty can reduce or eliminate tax liabilities from real estate income generated in
Serbia.

10.3 Securities

Foreign persons can invest in securities listed on the Serbian stock exchange. Income from securities
is subject to tax in Serbia. However, a favourable tax treaty provision can eliminate the taxation of
capital gains generated from the sale of Serbian securities.

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11. Trusts
The Anglo/American concept of trusts does not really exist in Serbia and Serbia does not recognise
the concept of tax transparency.

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12. Practical information

12.1 Transport

Ground transport is the most important means of passenger transport between the main centres in
Serbia.

12.2 Language

Serbian is the official language in Serbia. Serbian is written in both Cyrillic and Latin alphabets.

12.3 Time relative to Greenwich Mean Time (GMT)

Serbia is in the Central European Tome Zone, which means it is one hour ahead of GMT between the
end of October and the end of March and two hours ahead between the end of March and the end
of October.

12.4 Business hours

Business in Serbia is normally conducted during an eight-hour day, with offices typically open
between 9.00am and 5.00pm. Most business offices are closed on Saturday and Sunday.

12.5 Public holidays

The holidays observed by most businesses and government offices are:

New Years Day 1-2 January
Orthodox Christmas 7 January 7
Republic Day 15 and 16 February
Orthodox Good Friday Friday as per church calendar
Orthodox Easter as per church calendar
Orthodox Easter Monday as per church calendar
Labour Day 1 and 2 May
Armistice Day November 11 and 12

Tax Guide - Serbia

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Tax Guide - Serbia

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